Retail loans may turn cheaper

Banks may just make your home loan easier -- though it is not totally certain. The Reserve Bank of India (RBI) on Tuesday chose to do nothing on the policy repo rate and the cash reserve ratio (CRR) in its monetary policy review, essentially signalling that its worries over inflation far exceeded its concern to revive growth.

However, retail customers may get the benefit of lower lending rates as banks, encouraged by the additional liquidity provided by the one percentage point cut in Statutory Liquidity Ratio (SLR), may reduce rates on retail loans. The cut in the ratio means banks have a higher amount of cash to play with, giving them more elbow room to ease loan terms.

The lower SLR - the amount of deposits that need to be invested in government bonds and other liquid assets - is expected to release around Rs 68,000 crore for banks, which may find their way to retail loans.

"There would be transfer of resources from the SLR to the real sector whether private or public. This credit would largely go to retail," said Pratip Chaudhuri, chairman, State Bank of India, India's largest bank. "The option for us is to accelerate the retail, and in this there could be a reduction in the price to attract the customers."

The one percentage point reduction in the SLR will release an additional Rs 10,000 crore for SBI.

“The bigger impact of SLR is to make money available to contribute to credit growth, which in a way is a growth-orientation part of the policy,” said Chanda Kochhar, managing director and CEO, ICICI Bank. “Any measure that helps ease liquidity finally positively impacts interest rates,"”she said.

The lending rate cut is likely to be limited to selective sectors, bankers said.

“Instead of doing lending rate cut for all sectors, banks may cut lending rates for select or preferred sectors such as housing loans and other retail loans,” said M Narendra, chairman and managing director, Indian Overseas Bank.

This however is likely to be a decision of individual banks.

“Each bank will take decision based on its requirement,” said JP Dua, chairman and managing director, Allahabad Bank. “Reduction in SLR does not reduce cost of funds for the banks, it (just) increases liquidity which can be deployed to productive use.”